The Basic Health Option: A Little-Noticed Provision of Health Reform

The Basic Health Option: A Little-Noticed Provision of Health Reform

A little noticed provision of the health reform law gives states the option to cover those in the near-poor and moderate income brackets outside of insurance exchanges.

What is the Basic Health Program?

The Basic Health Program (BHP) is a feature of the Affordable Care Act (ACA) permitting states to cover low-income residents through a public insurance program similar to Medicaid beginning in January 2014. A few states, including California, are considering the BHP option. States can use BHP to cover:

US citizens under 65 with incomes between 134-200% of the federal poverty line (FPL)

Legally resident immigrants with incomes below 133% FPL living in the US for less than five years and not eligible for Medicaid

Under a BHP the State would receive 95% of the premium assistance payments and the cost-sharing subsidies that the Federal government would have otherwise used to help people in this income group purchase health insurance through the Exchange. This funding would finance the BHP. Benefits would follow the Essential Benefit Package under development for Exchanges rather than Medicaid. Cost sharing, however, would look more like Medicaid and be much less than under Exchanges.

Advantages of BHP

Affordability

People in the near-poor, or moderate-income range face significant cost sharing responsibilities within ACA’s exchanges despite limits on out-of-pocket costs. For example, a 40-year old person without access to affordable employer coverage and an income of $20,000 a year would face a premium contribution of $1,019 under an Exchange and also be exposed to out-of-pocket expenses up to a limit of $2,083 per year. In the BHP, there would be no premium contribution and only nominal cost sharing.

Cost Savings for States

According to several independent estimates, the BHP is a cost-effective option for states wishing to maximize coverage for this low-income population. An Urban Institute report, for example, found that coverage under the BHP would likely cost up to 29% less than the total amount of federal subsidies the state would bring in through federal contributions. This is because the premium subsidies are based on the cost of the second lowest-cost “silver” plan offered through the Exchange, and such a plan is based on cost structures much higher than comparable Medicaid costs.

Increased Coverage:

More low-income people would likely gain coverage through the BHP than if they were left to purchase individual coverage through the Exchange. The “take-up” rate is higher if cost sharing is lower.

Opportunity to Increase Provider Payments/Benefits: ACA does not allow states to retain or use excess funding for anything but the BHP. States would have the option of using the savings generated from the difference between the cost of the BHP and federal subsidies to increase provider payment rates above those paid under their Medicaid programs, thereby relieving the serious access problems caused by low payment rates for physicians and other providers.

Disadvantages of the BHP

Taking on Risk: Exchanges pose little or no financial risk for states as the federal government must cover the cost of the population through premium and cost sharing subsidies. Under BHP, the state takes on risk by accepting a fixed payment from the feds and hoping that the actual costs come in below that amount. While the first cut appears to show that subsidies will exceed costs, Congress could tighten the budget in future years.

Potential to Displace Private Coverage: Commercial insurers offering products in the exchange may oppose the BHP on grounds that it is a public program capturing a group of consumers from the private market. In the Exchange, people can choose from a wide array of private insurance coverage options, and there may be a concern that this would not be true under BHP. In fact, however, the law states that BHP must promote competition and choice and that states adopting the BHP option would have to offer choices of private plans, much as Medicaid does for the majority of its enrollees in managed care arrangements.

Removing exchange-eligible residents could damage the Exchange pool. Another concern is that BHP would hurt the Exchange by siphoning off a lower-risk population or by limiting the bargaining power of Exchanges by removing a large number of covered lives.

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